Should you invest in Sheela Foam IPO?

Leading manufacturer of mattresses Sheela Foam Limited had entered the primary market through the initial public offering (IPO) to raise Rs 510 crore. The issue commenced on November 29, 2016 and will be active till December 1, 2016. 

Crisil Research said, “The Sheela Foam with its brand Sleepwell  is estimated to account for around 20-23% of the organised segment as of 2015-16.”

Crisil expects overall mattress industry in the next five years to reach a total market size of Rs 130-140 billion by fiscal year 2021. While the organised market, by itself, is expected to grow at a CAGR of 11-13% to reach a market size of Rs 50-55 billion by the fiscal year 2021.

Despite the outlook ahead, few analysts recommend not to opt for IPO this time. 

Daljeet S. Kohli, Head of Research of India Nivesh said, “SFL’s financial track record has been healthy with its consolidated Revenue and PAT (profit after tax) growing by 10.3% and 50.3% compounding annual growth rate (CAGR) over FY13‐16.

He added, “Under a competitive and fragmented home comforts products and PU Foam industry, the company has managed to perform well. At the upper end of the price band of Rs 730, the company is available at 34x PE @ FY16 earnings.” 

Yet, Kohli recommends not to subscribe for this issue as he believe factors like higher RM cost, demonetization and higher valuation would give an opportunity to enter later at attractive price.

Similarly Way2Wealth said, “This is a full offer for sale by the promoter group, which mean no fresh money will be inducted into the company. While the profit margins have improved over the last one year they have been erratic in nature. GST holds a huge potential for the company in the future but we believe investors should wait and watch for stability of margins at these level and precedence of the same. We are NEUTRAL on the issue.”